Magni-Tech
is one of the counters that catches my heavy attention. Aside of
playing its role as packaging business, the group further ventures into
garment manufacturing industry as well. A combination of both decreases
the risk of company from enduring too much risk. Looking in deeper,
packaging business has accounted for 20% of the group's revenue where
most of the businesses' clients are venturing in non-cyclical business
such as food, healthcare and beverage. Thus, it ensures that the company
will generate a portion of steady revenue. As for the garment
manufacturer segment, most of its revenue is generated from export
markets. Different from other garment manufacturer, Magni-Tech doesn't
emphasize on marketing and building the brand of its product. Instead,
it fill up orders for garment trading companies who wish to outsource
their production line. Thus, Magni-Tech itself is more on business to
business transactions. With an average annual capital expenditure of RM5
million(it is barely about 1% of the total revenue), the amount is
minimal enough as it is spent for increasing the company's operation
efficiency rather than continuous innovation for survival purpose which
is a good thing.
As
the company generates big amount of its revenue overseas, this exposes
the company to a very high foreign exchange loss. ( I don't do the Maths
but based on news about Malaysia Ringgit's depreciation in 2013&
2014 2ndquarter, it is scary enough to estimate it.) Also,
instead of the company's ability to cushion its impact in case of global
financial crises, its garments sectors are still depending on the
international market on a large scale. Finally, its vulnerability is
further defined by its holding of investment securities (not subsidiary
and associate, just mere investment purpose) is worth a whopping RM22
million which is about 25% of its total fixed assets. I'm not saying the
company is a speculator, but with such an amount of investment with the
company's nature (as garment& package manufacturer and trader), the
risk is there.
With
its 10 years operating cash flow, things are looking good as the
company undergoes a healthy upward trend. Returns on asset and equities
surpass the bench mark of 7 and 15% respectively. For 6 consecutive
years, no drawdowns of loan have been made (This is remarkable as it
includes 2008& 2009). Up to date, no short term and long term loans
are recorded in the company's balance sheet. What's more is the company
cash reserve is positioned at RM50 million (as at 2013 April 30). It is
currently priced at RM2.70, compared to its intrinsic value of RM2.4( I
set the margin of safety 25% for the risk I've mentioned). It is
slightly overprice but still itis a counter full of potential.
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